A Case Study in Exchange Pairings: Why the Price of Ethereum has Continued to Rise

Michael LaVere |

1 year

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There is something interesting going on in the cryptomarketplace.

After reaching an all-time high of 19000+ USD, Bitcoin has struggled to trade above even 15000 for the last several weeks. Ethereum, the once undervalued altcoin that spent most of 2017 spinning its wheels below the 300 USD mark has been posting consistent gains despite an almost universal downturn in cryptocurrency since the start of the year. Just prior to the most recent market crash, Ethereum was trading for 1400 USD and closing the gap between Bitcoin’s top seeded market share. While there are a number of reasons for the rising price, from increased usability to growing interest in smart contracts and the technology Ethereum offers, the most impactful factor is the availability of ETH pairings on most exchanges.

The Value of Exchange Pairings

Bitcoin/Altcoin pairings are ubiquitous across all exchanges, but very few offer a direct conversion to fiat. Coinbase and Gemini are two of the more popular options for US based customers. This creates a tug-of-war relationship between Bitcoin and alts, where money from recent gains flows into altcoins to pump the price to new all-time highs, before retreating back to BTC when the value begins to appreciate. The effect is that if investors want to avoid cashing out (for tax purposes or other pursuits), they have two options: shelter their gains in Bitcoin and hope for the price to remain relatively stable, or try speculating in altcoins with the chance of massive gains but also crushing losses. However, a decent portion of exchanges also offer another option: ETH based pairings.

Bitcoin has created frustration for traders over the last two weeks. BTC pricing has been erratic, sinking to relative new lows and failing to achieve anything higher than the 14000 USD range (which it only touched briefly this week). Speculators in altcoins, flush with massive gains from the surge of XRP, Verge, Tron, etc. are looking for a stable coin to transfer their profit and begin the process again. Bitcoin is no longer the stable coin of choice. While Bitcoin prices are likely to continue their climb, once the negative press subsides and/or lightning network or some solution to the transaction congestion materializes, Ethereum has become the darling choice for investors looking to park their earnings and make some appreciative gains in the meantime. Cryptocurrency, for the most part, is made up of myopic traders and those looking for the fastest route to a quick buck. While there’s nothing wrong with the pursuit of profit, it creates market confusion and, even more detrimental to long-term crypto adoption, a distortion of value in genuinely exciting projects.

Building Interest in Ethereum’s Technology

Ethereum provides a solution to some of the fears of speculators. To begin, it’s not a new coin getting pumped to unsustainable prices. If anything, Ethereum’s price is at last reflecting its intrinsic value. Development on Ethereum has been ongoing since 2014, but, like most cryptos, it wasn’t until the beginning of 2017 that the price started taking off. Ethereum has had plenty of time to develop market share, a strong media presence and real-world use cases. Sure, a large volume of Ethereum’s network is devoted to CryptoKitties, as opposed to revolutionizing the world through smart contracts. But adoption is an ongoing process.

Does that mean Ethereum prices will plummet in the next week or so? Unlikely. Part of what’s driving the price is the bubbling excitement over the technology. A quick perusal of Github reveals a large number of developer commits working on or preparing new implementations on the Ethereum network. Bitcoin prices are not going down because they are going down, but rather a lack of usability. The greatest danger facing cryptocurrency and the most apparent cause of a bubble will be stagnation of real-world use. While Ethereum has yet to reach adoption on the scale that any cryptocurrency aspires to, it at least offers the prospect of real-world implementation. Bitcoin is getting there. But what we are seeing is backlash by investors, enthusiasts and the general public over the inability to use Bitcoin in the manner it was created.

In the meantime, alts are going to continue to pump and dump, the market will move in vapid directions, and the pursuit of profit will drive money in a way that does not necessarily make sense from an outsider’s point of view. However, the market is also desperately searching for the heir-apparent to Bitcoin. Not just because of the promise of massive profit (imagine getting in on a legitimate replacement for Bitcoin in 2018), but out of a craving for a decentralized currency and the promise of a revolutionary technology. Bitcoin may still be that currency, but the eroding market share and introduction of interesting new coins makes it appear the future of crypto will be in the hands of multiple currencies.

The Rising Price of Ethereum

To reiterate: Ethereum’s price is rising because of the rare position it holds alongside BTC as a prominent coin for altcoin pairing. People are transferring their gains from the recent boom in altcoins and locking them into ETH’s current appreciating price. However, the price is also rising in recognition for the achievement that Ethereum presents in terms of alternative technology to Bitcoin. ETH was not created as a direct competitor to Bitcoin. While it offers usability as a currency for traditional transactions, there is also a deeper layer of operation to the Ethereum network that has yet to be scratched.